Saturday, 21 May 2022

UK power capacity auction for 2020-21 clears at 22.50 pounds per kW/year

LONDON: Some power plants in Britain could be at risk of closure after missing out on agreements to provide capacity for 2020/21 in an auction that cleared at a lower-than-forecast 22.50 pounds ($28.35) per kilowatt (kW)/year. Britain began capacity auctions in 2014, looking to head off future power shortages as coal plants close and low electricity prices dissuade investors from building new ones. Power plant owners are paid to make available back-up electricity at short notice. Utilities Centrica, SSE, Drax, EDF Energy, RWE, E.ON, Scottish Power and Uniper were among 166 applicants provisionally awarded capacity agreements. Contracts for 52.43 gigawatts (GW) of electricity were awarded in the auction on Thursday. “5.8 GW of existing capacity exited the auction above the clearing price and is now at increased risk of financial closure as a result in our view,” analysts at Barclays wrote. “Notable plants to miss out on capacity payments include SSE’s Peterhead and Fiddler’s Ferry stations… and (on first look) Drax’s new (gas) projects – with the company having previously stated that they would hold back these projects until the auction cleared at a sufficiently high price,” they wrote. “It appears that the only successful ‘new’ large (gas) projects were extensions or significant refurbishments of existing sites – thereby reducing investment cost requirements.”

Centrica said it had secured 15-year agreements to provide more than 500 MW of new capacity. This includes a 370 MW combined-cycle gas turbine at King’s Lynn, on which construction will start next spring. SSE said it had secured agreements to provide 3,239 MW of capacity in 2020/21 but its Peterhead gas plant and Fiddler’s Ferry coal plant were not awarded agreements. The firm said the auction results would not affect its operational stations, which would be available this winter. Drax said on Tuesday it planned to buy four open-cycle gas turbine plants with a capacity of 1.2 GW from Watt Power, a unit of Noble Group Ltd. Drax was not immediately available to comment on the auction results. The clearing price was below the 35-45 pounds level analysts said would likely be needed to help incentivise new gas plant investment. Back-up electricity is tapped when supply is too low to meet demand, for instance during cold snaps, when renewable energy sources fail to produce enough power, or when thermal power plants have failures. National Grid said the auction results remain provisional until confirmation by Britain’s secretary of state for energy on Dec. 20. ($1 = 0.7935 pounds)

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